Quote:
Originally Posted by MichaelOrear
Hello,
Just wondering:
1. What are the advantages and disadvantages of Real Estate investing compared to regular entrepreneurship?
2. Which is a better way to build wealth in Real Estate: Commercial vs. Residential?
3. How do those who make it big in real estate from scratch make it?
Thanks
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Having been a successful real estate investor, I'll try to answer.
1. It really depends on what market and what kind of real estate you choose. For example, if you choose commercial, are you investing in office, retail, or industrial? What is the absorption rate like in your particular geographic area for each? If retail, what are the traffic counts? If industrial, what is the property's proximity to things such as rail lines and interstate? The list goes on and on.
2. Personally, I think commercial. For residential not only requires much more strict lending nowadays, but the market can be very up and down, as everyone learned in 2008. Further, when it comes to residential, you have to keep building in order to maintain income. Once you sell the house, you have to build another one.
Meanwhile, if you have a good commercial property that's leased above the 80% occupancy rate, then you are cash flowing for long periods of time. For example, properties of which we are shareholders are industrial in an area filled to the gunwales with defense contractors, so we have nice 10-year leases. And over the past ten years, we've realized an annualized 8% return, even taking the market crash into account. The downside, of course, is if a big tenant leaves and you have to make improvements to the space. That's cash out of your pocket. But, on the whole under the right circumstances, it's sweet. And if you're more than 80% occupied with long-term leases, it's a very easy asset to sell at a considerable profit.
3. Have a considerable stake to begin with. Then find a reliable real estate company that needs investor. Not some fly-by-night guy, but a firm that has a solid track record for growth and tight-fisted financial management. Nice dull guys who make nice dull buildings profitable.